Globe & Mail IA Capital Markets analyst Matthew Weekes expects sustained near-term uncertainty surrounding AltaGas Ltd.’s (
) Mountain Valley Pipeline (MVP), “which likely moves the deleveraging profile further out.”
However, after “mixed” fourth-quarter 2021 financial results, he said he remains constructive on the medium-to long-term growth fundamentals for the company’s hybrid gas utility/midstream platform, “including Montney gas growth beyond short-term activity delays, rate base growth in gas Utilities, and structural NGL export demand to Asian markets.”
“ALA recorded an impairment charge on its equity investment in the MVP due to ongoing regulatory challenges. The timing of a potential in-service date for the project remains uncertain, but it will likely not be until at least 2023,” said Mr. Weekes.
On Friday, shares of AltaGas slid 1.1 per cent after it reported before the bell normalized earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter of $341-million, missing Mr. Weekes’s projection of $355-million. However, normalized earnings per share of 38 cents topped his estimate by 4 cents.
”The Midstream segment was in line with our forecast, as expected headwinds from hedging losses and the flooding in B.C. offset growth in the platform and increased processing and fractionation volumes,” he said. “Utilities was below our forecast, impacted by warm weather, FX, and lower retail marketing margins.
“Asset sales announced ... The main one of these are certain non-operated gas processing assets for $235-million, which is expected to close in Q2/22. ALA indicated the sales multiple on these assets at 9-10 times. We are taking a neutral stance on this transaction, as, although the multiple is lower than our valuation multiple for the enterprise, it also increases ALA’s weighting to higher-value Utilities.”
While AltaGas maintained its 2022 guidance, Mr. Weekes cut his estimates closer to the low end based on the newly announced asset sales and to “consider other factors such as potential lingering effects of the floods into early Q1/22, delayed activity in NEBC, and tempered ROE for Utilities.”
“This is offset in our valuation due to EPS remaining relatively unchanged and increased comparable multiples,” he added.
Keeping a “buy” rating, Mr. Weekes raised his target for AltaGas shares by $1 to $31. The average target is $31.23.
Other analysts making adjustments include:
* ATB Capital Markets’ Nate Heywood to $32 from $30 with an “outperform” rating.
“Despite some headwinds in the quarter, including warmer weather for Q4/21, the Company is well situated for strong risk-adjusted cash flows moving forward as it continues to invest in the Utilities business. The near immediate returns should also lend support to the Company’s deleveraging priorities as it continues to target a sub 5x multiple. Management continues to find alternative ways to help accelerate the deleveraging process as illustrated by the recent non-core asset sales. Management continues to guide to 2022,” said Mr. Heywood.
* CIBC’s Robert Catellier to $33 from $34 with an “outperformer” rating.